This article is Part V of the Musings on Contracts series by Glenn D. West, which explores the unique contract law issues the author has been contemplating, some focused on the specifics of M&A practice, and some just random.
I have always said that the job of a transactional lawyer is not for the faint of heart. The practice of law involves, as Oliver Wendell Homes, Jr., famously said, the art of “prediction.”[1] For a transactional lawyer, that means that you have to predict how a court will interpret the words you use to convey the client’s objectives in a written agreement intended to evidence a deal; and you have to predict the most important of the likely disputes that may arise that will require that interpretive exercise by a court, and then make choices over what to push to change and what is better left as is.
The objective theory of contract dictates that it does not generally matter what was meant by what was said in a written agreement; it only matters what was actually said.[2] But sometimes deal dynamics do not permit you to obtain the clarity you may desire in all of the words used in a negotiated agreement, and you have to choose which are likely to be the most important. And sometimes deal dynamics require ambiguity rather than clarity. A recent case from the Delaware Court of Chancery, Comcast Cable Communications Management, LLC v. CX360, Inc.,[3] illustrates some of these principles.
Comcast Cable involved a dispute over a Master Services Agreement (“MSA”), whereby CX360, as Vendor, provided interactive voice response (“IVR”) services to Comcast. These IVR services were critical to Comcast’s customer service. The process whereby CX360 became the Vendor providing IVR services to Comcast involved an RFP that included a form MSA prepared by Comcast and which required potential service providers to submit a mark-up showing any requested changes. The RFP discouraged changes to the form, and CX360 was apparently strategic in the few changes it suggested (not dissimilar to the process a buyer in an auction of a private company is required to navigate).
The original form MSA prepared by Comcast gave it the sole right to terminate the MSA at its convenience. Specifically, the form stated:
Comcast may, at its election, terminate this Agreement and/or any [statement of work] without cause on ninety (90) days written notice to the Vendor.
CX360’s mark-up made a simple change to this provision as follows:
ComcastEither party may, at its election, terminate this Agreement and/or any SOW without cause on ninety (90) days written notice to the Vendor.
The final version of the MSA kept this change but capitalized the “p” in Party. “Party” was defined elsewhere in the MSA to be Comcast or CX360.
Absolute clarity for CX360, of course, would have required one additional change—i.e., crossing out “Vendor” and replacing it with “other party.” As written, the provision technically requires CX360, if it is the terminating party, “to notify itself upon [exercising its right of] termination.”[4] And, as was pointed out in the subsequent dispute, “[i]t would be absurd to require CX360 to provide notice to itself rather than to Comcast.”[5] But that change was never made or suggested. Other provisions of the MSA focused solely upon Comcast’s right to terminate for convenience, but not on CX360’s. Most of those provisions dealt with the compensation due CX360 if Comcast exercised its right of termination. And those other provisions make perfect sense when you consider the fact that the original form never contemplated a mutual right of termination for convenience by either party—only Comcast was to have that right as originally envisioned.
Comcast’s internal approval memo for the MSA focused on the provisions giving Comcast a termination for convenience right, and it made no mention of CX360 also having such a right. And apparently, the persons responsible for approving and signing the MSA read only the approval memo, not the actual MSA.
Everything went smoothly from 2014 until the end of 2022. The MSA was otherwise set to expire in 2025. But in December of 2022, a malware attack caused the IVR system to cease functioning for about four days. Thereafter Comcast began looking for alternatives to the existing IVR system. In September of 2023, Comcast launched a new RFP to determine its Vendor for IVR services, to commence when the existing MSA expired in 2025. CX360 was among the companies that submitted responses to Comcast’s new RFP. And while CX360 believed it had convinced Comcast to renew the MSA with CX360, Comcast decided to go in another direction. Comcast then requested a transition arrangement with CX360 to bridge to the new Vendor, but the proposed terms of the transition arrangement were very unfavorable to CX360. To level the playing field, CX360 decided to exercise the ninety-day termination right that CX360 believed it had bargained for in the MSA and thereby pressure Comcast into being more reasonable in the negotiation of a transition arrangement—i.e., CX360 was accelerating the end of the MSA with no transition to the new Vendor. But the parties were unable to agree, and litigation ensued.
Comcast’s position was that CX360 did not actually have a termination right—only Comcast did. And that position was based upon the alleged ambiguity created by the language at the end of the otherwise mutual right to terminate—i.e., the language providing for the right to terminate to be exercised by providing “‘written notice to the Vendor’—i.e., CX360.”[6] But according to Vice Chancellor Will, “sloppy drafting does not necessarily create ambiguity.”[7] The only ambiguity here was to whom notice was due, “not the substantive termination right afforded to ‘[e]ither Party.’” Indeed, according to Vice Chancellor Will, “Comcast’s argument that the ‘notice to the Vendor’ language means only Comcast could terminate for convenience would make CX360’s bargained-for termination right ‘illusory or meaningless.’”[8]
This was clearly the right outcome. Whether CX360 considered making a further clarification when it was marking up the original form MSA, and made a calculated decision that requesting fewer changes was strategically the best course, is not known. This “less was enough” approach certainly worked out for CX360, whether it was intentional or not—and who knows if CX360 would have obtained the mutual right to terminate for convenience had it pursued absolute clarity in the context of bidding for the privilege of providing Comcast’s IVR services and being told that changes to the form would be viewed negatively.
Transactional lawyering is more of an art than a science. But make no mistake, words matter; and sometimes the strategically best choice is fewer words, even if those words lack absolute clarity. Could AI make these judgements for you? Time will tell, of course, but I don’t think so.
See Oliver Wendell Holmes, Jr., The Path of the Law, 10 Harv. L. Rev. 457, 457 (1897). ↑
See id. at 464 (“the making of a contract depends . . . not on the parties having meant the same thing but on their having said the same thing.”). ↑
2024 WL 5251997 (Del. Ch. Dec. 31, 2024). ↑
Id. at *9. ↑
Id. ↑
Id. ↑
Id. ↑
Id. at *10. ↑
